We recently had several posts on accidental disinheritance. In those posts, we talked about how estate plans in Kansas City were affected by the beneficiary designations. Specifically, how easy it is to create a good legacy plan and then have it completely obliterated by poor beneficiary designations. What typically happens is that the estate plan is good, but the beneficiary designations don’t match the plan, or become outdated over time.
Below is a great example of how the current spouse of the decedent did not get the life insurance proceeds because the deceased husband didn’t change the beneficiary designation and it went to the former spouse.
Picture this — a frantic call to the family lawyer by a recent widow we’ll call Fran. Fran had just learned that her deceased husband Ed’s life insurance proceeds were going to be paid to his ex-wife Sally. As Ed’s current wife, shouldn’t she, not Sally, be entitled to the life insurance proceeds? Ed had changed his will prior to death making Fran the beneficiary of his entire estate. Doesn’t this change the policy designation as well?
As Fran found out from her lawyer, beneficiary designations can be the trump card of estate planning. Sally will receive the life insurance proceeds. In certain financial instruments the beneficiary designations control the asset disposition regardless of other provisions, such as in a will. Given this, here a few points to keep in mind:
Assets whose beneficiary designations trump any wills or estate directives include:
* Individual and group life insurance
* Traditional and Roth IRA’s
* Qualified retirement plans, 401k’s, etc
* ESOPs (Employee Stock Option Plan)
* Contractual rights under deferred compensation plans
* Employment contracts
— Be sure to name primary and contingent beneficiaries.
— When making changes to these documents, confirm with the receiving institution that the changes were actually made and reflect your wishes.
— Keep copies of your beneficiary documentation — it might be years before they are needed and the custodian might not be able to locate the paperwork.